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Business News/ News / India/  Economic revival weak as new investments fail to pick up in Dec quarter
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Economic revival weak as new investments fail to pick up in Dec quarter

Despite the festive season and a slowdown in the pandemic, new project investments have fallen yet again in the December quarter

Both private and public sector companies announced new projects worth ₹80,000 crore in the December quarter (REUTERS)Premium
Both private and public sector companies announced new projects worth 80,000 crore in the December quarter (REUTERS)

After hitting record lows during the lockdown months, new project investments fell further in the December quarter, latest numbers from the project-tracking database of the Centre for Monitoring Indian Economy (CMIE) shows.

Both private and public sector companies announced new projects worth 80,000 crore in the December quarter, a 89% year-on-year decline and a 22% decline compared to the quarter ended in September this year. The numbers are provisional and subject to change.

The decline in new projects in December is a cause for concern. Unlike the June quarter when a strict lockdown put a pause on most economic activities, economic indicators had improved in the December-ended quarter. Festivals, increased public mobility, and improved covid-19 curve had led to hopes of recovery.

This signals caution from companies despite the increased momentum in economic activities in the past quarter. High-frequency indicators tracked by Mint’s macro tracker suggest that the Indian economy progressed marginally in November as compared to October.

After hitting a 12-year high in October this year, the pace of expansion in manufacturing activity saw a small dip in November, the latest purchasing managers’ index data for India shows.

Notwithstanding the increased demand and relatively higher manufacturing activity, investment numbers have not revived, the latest numbers show.

Speaking recently at the Hindustan Times leadership summit, Nobel laureate and economist Abhijit Banerjee said that there was a massive demand shock and that the domestic economy was not offering huge rewards right now. This could have been a reason for the investment numbers. Banerjee also said the country needed a ‘demand bounce’, which hasn’t happened yet.

The CMIE capex numbers indicate that firms are likely to hold new investments till there is greater clarity on demand revival and favourable economic environment.

It is not just the private entrepreneurs who continue to be risk-averse. Cash-strapped governments have squeezed capex more than the private sector. Compared to the last quarter, private sector new projects have risen by 8%, while the same fell by 71% in the government sector.

The fall in government capex was the sharpest in state-level projects, which fell from 19,000 crore in the previous quarter to just 1,900 crore in the December quarter.

Central government projects also fell, but not as sharply as the state government ones. The Q3 values for central government projects are 53% less than the previous quarter levels and 95% less than last-year levels. An interstate transmission system-connected wind power project by Solar Energy Corp of India and Indian Oil’s Lube Blending Project accounted for 90% of the central government’s new projects.

Most sectors except mining and electricity saw a decline in new projects in the quarter ended December. Electricity saw a slight pick-up while mining project announcements quadrupled over a low base. Mining investments are just 2% lower than the year-ago levels, signalling normalcy in the sector. New investments in the mining sector came entirely from the private sector. Essar Minmet’s Beneficiation and Pellet Plant Project in Odisha and Bright Sino’s project in Maharashtra accounted for more than 90% of the total fresh private investments in mining this quarter.

The proportion of stalled projects to the total programmes under implementation saw insignificant changes in both the government and the private sector.

Lack of funds continues to be the biggest known factor for stalled projects. ‘Other factors’ were otherwise the major reason for stalled projects. Covid-19 disruptions might have contributed to this. This category essentially takes into account unanticipated disruptions and natural calamities.

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Published: 01 Jan 2021, 04:30 PM IST
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